An Overview Claudiney Pereira Tulane University Public Finance Workshop ECLAC United Nations Santiago Chile January 22 2014 1 Suppose you want to know Assessment of current fiscal ID: 257724
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The Impact of Taxes and Social Spending on Inequality and Poverty in Argentina, Bolivia, Brazil, Mexico, Peru and Uruguay: An OverviewClaudiney Pereira, Tulane University
Public Finance Workshop ECLAC, United NationsSantiago, ChileJanuary 22, 2014
1Slide2
Suppose you want to know…Assessment of current fiscal system:What is the impact of taxes and government transfers on inequality and poverty?
Who are the net tax payers to the “fisc”?How equitable is access to government education and/or health services? By income, gender, ethnic origin, for example.How progressive are taxes and public spending?
2Slide3
Suppose you want to know…Impact of hypothetical or actual reforms:How do inequality and poverty change when you eliminate VAT exemptions?Who benefits from the elimination of user fees in primary education or the expansion of noncontributory pensions?
Who loses from the elimination of energy subsidies?3Slide4
Basic elements of standard fiscal incidence
Start with:Before taxes income of unit h, or Ih
Taxes Ti
“Allocators” of tax i to unit h, or Sih
(or the share of tax i borne by unit h)
Then, post-tax income of unit h (Y
h) is:Y
h = Ih - ∑
i TiS
ih
4Slide5
5Slide6
Allocation MethodsDirect Identification in microdata
If not in microdata, then:SimulationImputationInferenceAlternate SurveySecondary Sources
6Slide7
Allocation MethodsTax shifting assumptionsTax evasion assumptionsTake-up of cash transfers programs
Monetizing in-kind transfers7Slide8
Commitment to Equity Assessments (CEQ) for Latin AmericaComprehensive standard fiscal incidence analysis of current systems; no behavior and no general equilibrium effectsHarmonizes definitions and methodological approaches to facilitate cross-country comparisonsUses income per capita as the welfare indicator
Allocators vary => full transparency in the method used for each category, tax shifting assumptions, etc.Mainly average incidence; a few cases with marginal incidenceIncidence at the national level; rural and urban; by race and ethnicity 8Slide9
Methodological ContributionsClarify and homogenize terminology: e.g., definitions of progressive or regressive taxes and transfers Disaggregate changes in outcome indicators (disposable income inequality or poverty) into market and redistribution componentDevelopment of new indicator: rate of impoverishment
9Slide10
Rate of ImpoverishmentExtent to which poor (nonpoor) people who are made poorer (poor) by fiscal systemTraditional indicators of poverty, inequality, stochastic dominance, horizontal inequity, progressivity fail to capture impoverishmentProposed measures
Fiscal Mobility Matrix Impoverishment HeadcountImpoverishment GapSee Higgins and Lustig (2013)10Slide11
Main ResultsSix countries publication in progress in Public Finance Review: Argentina, Bolivia, Brazil, Mexico, Peru and UruguaySix countries finished recently: Chile, Colombia, Costa Rica, El Salvador, Guatemala, ParaguayIn progress: Ecuador, Dominican Republic(*), Honduras, Nicaragua, and Venezuela
11Slide12
Main Results: the ForeseeableDirect Taxes generally progressive but with little impact on inequalityCCTs progressive in absolute terms; well targeted in practically all countriesIndirect taxes regressive or neutral
Redistribution is larger through in-kind benefits in education and health than cash transfers12Slide13
Progressivity of Taxes & Transfers13
Ar
gentina
Bolivia
Braz
il
Mexico
Peru
U
rugua
y
G
i
n
i
M
arke
t
Inco
m
e
0
.
49*
0
.
50
0
.
58
0
.
51
0
.
50
0
.
49
K
ak
w
an
i
C
oefficient
T
a
x
e
s
D
i
rec
t
Taxe
s
na
ne
0
.
19
0
.
30
0
.
43
0
.
25
Ind
i
rec
t
Taxe
s
na
-0
.
13
-0
.
06
0
.
01
0
.
02
-0
.
05
A
ll
na
-0
.
1
3
0
.
02
0
.
1
1
0
.
08
0
.
07
C
oncentration
C
oefficients
D
i
r
e
c
t
T
r
a
n
s
f
e
r
s
N
oncontributory
Pensions
-0
.
27
0
.
01
-0
.
48
-0
.
10
ne
-0
.
53
F
l
agsh
ip
CC
Ts
a
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.
50
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.
25
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.
58
-0
.
54
-0
.
65
-0
.
61
A
ll
-0
.
31
-0
.
07
0
.
03
-0
.
30
-0
.
48
-0
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47
E
d
u
c
a
t
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S
p
e
n
d
i
n
g
Pre-schoo
l
na
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21
-0
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33
-0
.
24
-0
.
25
-0
.
45
Pr
i
m
ar
y
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39
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25
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.
31
-0
.
25
-0
.
34
-0
.
43
Secondar
y
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.
24
-0
.
12
-0
.
21
-0
.
08
-0
.
20
-0
.
12
Ter
ti
ar
y
0
.
20
0
.
30
0
.
44
0
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32
0
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31
0
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47
A
ll
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20
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02
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5
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09
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23
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04
-0
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11
0
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04
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18
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10
S
o
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S
p
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15
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04
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09
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06
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02
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16
I
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0
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26
na
ne
T
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1
6Slide14
Public spending on education and health is a more powerful equalizer than cash transfers 14Slide15
Main Results: the UnexpectedDiversity: government size: primary spending from 41 in Brazil to 19 percent of GDP in Peruextent of redistribution (25% in Arg, 7% in Peru)Net payers to the
fisc (in terms of cash) start at relatively low decilesTertiary Education is progressive in relative terms or neutralContributory Pensions are progressive (in relative terms) or regressive depending on the country15Slide16
Budget Size and CompositionPrimary and Social Spending as % of GDP16Slide17
Cash Transfers reduce poverty notably only when targeted and of significant magnitudeCash transfers reduce extreme poverty by more than 60 percent in Uruguay and
Argentina…….but only by 7 percent in Peru, which spends too little on cash transfers to achieve much poverty reduction17Slide18
Headcount: Before and After Cash Transfers18Slide19
Fiscal Policy and PovertyHeadcount Ratio19Slide20
However, indirect taxes wipe out the poverty-reducing effect of cash transfers20Slide21
Net Payers to the Fisc21Slide22
Main Results: the UnexpectedArgentina is among the most ‘effective’ countries at redistribution and poverty reduction; however, redistribution might have gone “too far”Bolivia is a leftist government that redistributes littleBrazil indirect taxes wipe out cash
transfers’ benefits to the poor and cause a significant amount of impoverishmentthe poor whites receive more in cash transfers than the poor black and pardos 22Slide23
Main Results: the UnexpectedMexico: Over time, redistribution has increased but Mexico still lags behind its peers such as Arg, Bra and Urycoverage of
Oportunidades and other cash transfers leave about 30 percent of extreme poor without safety netPeru: health spending is progressive only in relative terms23Slide24
“Poster-child:” UruguayPrimary Spending/GDP is within reasonable levelsReduces inequality and poverty among the highestHas among the highest effectiveness indicatorsTaxes are neutralAll social spending categories are progressive in absolute terms
Coverage of the poor is close to 100 percentOnly evident problem: access to tertiary is concentrated in the nonpoor24Slide25
ConclusionsDirect taxes and cash transfers reduce inequality and poverty by nontrivial amounts in Argentina, Brazil, and Uruguay but less so in Bolivia, Mexico, and PeruDirect taxes are progressive, but redistributive impact is smallCash transfers programs are quite progressive in absolute terms, except in Bolivia
In Bolivia and Brazil, indirect taxes more than offset the poverty reducing impact of cash transfersIn-kind benefits have a large effect on reducing inequality in all countries25Slide26
Commitment to Equity (CEQ), joint project of Tulane University and Inter-American Dialogue. www.commitmentoequity.org
26Slide27
CEQ GlobalWorld BankArmenia Ethiopia
IndonesiaJordanSouth AfricaSri LankaGates Foundation GhanaTanzania
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AcknowledgementsThis paper was produced under the Commitment to Equity (CEQ) project. Launched in 2008, the CEQ framework was designed to analyze the impact of taxation and social spending on inequality and poverty in individual countries and to provide a roadmap for governments, multilateral institutions, and nongovernmental organizations in their efforts to build more equitable societies.
Led by Nora Lustig and Peter Hakim, the CEQ is a project of the Center for Inter-American Policy and the Department of Economics, Tulane University and the Inter-American Dialogue.
Since its inception, the CEQ has received financial support from Tulane University's Center for Inter-American Policy and Research, the School of Liberal Arts and the Stone Center for Latin American Studies as well as the Canadian International Development Agency (CIDA), the Development Bank of Latin America (CAF), the General Electric Foundation, the Inter-American Development Bank (IADB), the International Fund for Agricultural Development (IFAD), the Norwegian Ministry of Foreign Affairs, the United Nations Development
Programme's Regional Bureau for Latin America and the Caribbean (UNDP/RBLAC), and the World Bank.
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Thank you!29Slide30
References Argentina: Lustig, Nora and Carola Pessino. Social Spending and Income Redistribution in Argentina in the 2000s: The Rising Role of Noncontributory Pensions. In
Lustig, Nora, Carola Pessino, and John Scott, editors, Fiscal Policy, Poverty and Redistribution in Latin America, Special Issue, Public Finance Review, forthcoming.Bolivia
: Paz Arauco, Veronica, George Gray Molina, Wilson Jiménez Pozo
, and Ernesto Yáñez Aguilar. Explaining Low Redistributive Impact in Bolivia. In Lustig, Nora, Carola
Pessino, and John Scott, editors, Fiscal Policy, Poverty and Redistribution in Latin America, Special Issue, Public Finance Review, forthcoming.Brazil:
Higgins, Sean and Claudiney Pereira. The Effects of Brazil’s High Taxation and Social Spending on the Distribution of Household Income. In Lustig
, Nora, Carola Pessino, and John Scott, editors, Fiscal Policy, Poverty and Redistribution in Latin America, Special Issue,
Public Finance Review, forthcoming.
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References Mexico: Scott, John. Redistributive Impact and Efficiency of Mexico’s Fiscal System. In Lustig, Nora, Carola
Pessino, and John Scott, editors, Fiscal Policy, Poverty and Redistribution in Latin America, Special Issue, Public Finance Review, forthcoming.Peru: Jaramillo, Miguel. The Incidence of Social Spending and Taxes in Peru. In Lustig, Nora, Carola
Pessino, and John Scott, editors, Fiscal Policy, Poverty and Redistribution in Latin America, Special Issue, Public Finance Review, forthcoming.
Uruguay: Bucheli, Marisa, Nora Lustig, Máximo Rossi, and Florencia Amábile
. Social Spending, Taxes, and Income Redistribution in Uruguay. In Lustig, Nora, Carola Pessino
, and John Scott, editors, Fiscal Policy, Poverty and Redistribution in Latin America, Special Issue, Public Finance Review, forthcoming.
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